Developing countries paid out $741 billion more in principal and interest on their external debt than they received in new financing between 2022 and 2024, representing the largest gap in at least 50 years, according to the World Bank’s latest International Debt Report released Wednesday. The stark finding underscores mounting financial pressures facing the world’s poorest nations as they struggle to balance debt servicing with essential public spending on healthcare, education, and infrastructure.
The combined external debt of low and middle income countries hit an all time high of $8.9 trillion in 2024, with a record $1.2 trillion owed by the 78 mainly low income countries eligible to borrow from the World Bank’s International Development Association (IDA). Interest payments alone reached a record $415 billion, resources that could have been directed toward schooling, primary healthcare, and essential infrastructure, the Washington based lender noted.
World Bank Chief Economist Indermit Gill warned that despite improving global financial conditions, developing countries remain in precarious territory. He stated that debt buildup is continuing in new and pernicious ways, urging policymakers everywhere to make the most of the breathing room that exists today to put their fiscal houses in order instead of rushing back into external debt markets.
The average interest rate that developing economies will pay to their official creditors on newly contracted public debt in 2024 stood at a 24 year high, while the average paid to private creditors was at a 17 year high. Bond investors pumped in $80 billion more in new financing than they received in principal repayments and interest, helping several countries complete multi billion dollar bond issuances. However, the funds came at a steep price, with interest rates hovering around 10 percent, about double those before 2020.
Most countries gained some breathing room on their debt last year as interest rates peaked and bond markets opened up again, enabling many nations to stave off the risk of default by restructuring their debt. Developing countries restructured $90 billion in external debt in 2024, more than at any time since 2010. Emerging markets including Ghana, Zambia, Sri Lanka, Ukraine, and Ethiopia completed restructurings, while Haiti and Somalia received debt forgiveness.
The World Bank emerged as the single largest provider of financing for IDA eligible countries in 2024, providing a record $18.3 billion more in new financing to these nations than it received in principal and interest payments. The institution also provided a record $7.5 billion in grants to these countries, filling a critical gap as other creditors retreated from the market.
Official bilateral creditors, mainly governments and government related entities, retreated after participating in a wave of restructurings that cut the long term external debt of some countries by as much as 70 percent. In 2024, bilateral creditors took in $8.8 billion more in principal and interest than they disbursed in new financing for developing countries. Net flows of bilateral lending collapsed 76 percent to $4.5 billion, a level not seen since the 2008 financial crisis.
With options for low cost financing dwindling, many developing countries turned to domestic creditors such as local commercial banks and financial institutions. Of 86 countries for which domestic debt data are available, more than half saw their domestic government debt grow faster than external government debt. In 50 countries, domestic debt grew at a faster pace last year than external debt.
Haishan Fu, the World Bank Group’s Chief Statistician and Director of its Development Data Group, acknowledged that the rising tendency of many developing countries to tap domestic sources for their financing needs reflects an important policy accomplishment, showing that local capital markets are evolving. However, he cautioned that heavy domestic borrowing can spur domestic banks to load up on government bonds when they should be lending to the local private sector, and domestic debt also comes with shorter maturities, which can raise the cost of refinancing.
The report offers troubling insights into how high debt levels have affected the daily lives of people in developing countries. Among the 22 most highly indebted countries, those whose external debt stock exceeds 200 percent of export revenue, an average of 56 percent of the population is unable to afford the minimum daily diet necessary for long term health. Eighteen of these countries are IDA eligible nations, where nearly two thirds of the population cannot afford the necessary diet.
The data reveals that 54 percent of low income nations are now in debt distress or facing high debt risks. An average of one out of every two people in the most highly indebted countries was unable to afford the minimum daily diet necessary for long term health, highlighting the human cost of the debt crisis.
The World Bank cautioned that while bond markets reopened for most countries as the long global interest rate hiking cycle ended, paving the way for billions of dollars in new issuance, developing countries should not deceive themselves about being out of danger. Some risky borrowers like Suriname and Angola have raised billions through debt sales this year, but the underlying vulnerabilities remain significant.
The report emphasizes that governments should be careful not to overdo domestic borrowing despite the growing sophistication of local capital markets. The Bank for International Settlements, an institution owned by central banks, has similarly raised the alarm over risks posed by ballooning public debt in developing nations.
The International Debt Report, which has been published for five decades, tracks evolving borrowing patterns and new lending instruments over the years, measures the impact of initiatives to relieve debt burdens, and promotes best practices in debt recording and reporting. The newly published 2025 edition includes an analysis of end 2024 external debt flows and debt stock positions as well as the macroeconomic and debt outlook for 2025 and beyond.
